The Japanese candlestick chart is the most popular candlestick method most traders use when analyzing the market, although there are other candlestick charts that also display the prices of assets and can be used to pick entries.
In this article, we are going to be looking at 5 candlesticks charts that can also be used to analyze the financial market
What is a chart candlestick?
A candlestick chart is a style of financial chart used to describe the price movements of a security, derivative, or currency.
It is similar to a bar chart in that each candlestick represents all four important pieces of information for that day: open and close in the thick body; high and low in the “candlewick”. A candlestick chart is also a financial chart that typically shows the price movements of currency, securities, or derivatives. It looks like a candlestick with a vertical rectangle and a wick at the top and bottom. The top and bottom of the candlestick show open and closed prices.
Candlestick charts have been around since the 1700s when a Japanese man named menuhisa Homma invented them. He realized that there was a link between the price of rice, the supply and demand, and the rice traders’ emotions.
He developed a chart where each candlestick represented one of the four dimensions of a trading period—the open, the high, the close, and the low. One hundred years later, the West caught up with him, and the rest is history.
Charts show market volatility and trends and can be an important tool for investors and traders wanting a thorough analysis before investing. Technical analysis using candlesticks plays a key part in any trader’s plan, determining when to enter and exit trades.
How Does a Candlestick Chart Work?
Candlestick charts show a range of information:
- Open price
- Close price
- Highest price
- Lowest buy price
- Patterns and trends in share prices
- Emotions of trades.
The “real body” is the rectangular candlestick, which shows the open and close price of the shares and equities (or rice). The wick or “shadow,” which runs from the top and bottom of the real body, shows the high and low price points for the day. If the real body is black or filled in, it shows that the close price was lower than the open price. If the real body is open, the close price is higher than the opening.
Trading, while having certain measurable elements, is largely dictated by emotion. Viewed holistically, candlestick charts show this emotion. The relationship between the open, close, high, and low all have an effect on the appearance of the candlestick. The following are types of charts on tradingview
- Bar
- Hollow Candles
- Heikin Ashi
- Line Break
- Baseline
BAR
A bar chart is a collection of price bars, with each bar showing price movements for a given period. Each bar has a vertical line that shows the highest and lowest price reached during the period.
Bar charts consist of multiple price bars, with each bar illustrating how the price of an asset or security moved over a specified period. Each bar typically shows open, high, low, and closing (OHLC) prices, although this may be adjusted to show only the high, low, and close (HLC).
HOLLOW CANDLES
A hollow bar will always be created when the close is higher than the open. This type of candle shows buyers were in control of the security because the price was able to rise over the period, but this does not provide enough information to predict what will happen next. The hollow Candlestick chart plots the data series using a sequence of candlestick figures. A single candlestick consists of a body and a wick.
The entire length of the candlestick represents the distance from the high to the low. The body represents the distance between the open price and the closed price. The wick can be on either end or both ends.
A wick above the body represents the distance from the high to the open/close, whichever is closer.
A wick below the body represents the distance from the low to the open/close, whichever is closer. On the chart, the body of a candlestick takes the form of a pillar-like rectangle. The wick is the line above and/or below the body. The body of a candlestick can be either hollow or solid.
LINE BREAK
Line Break charts are commonly called “three-line break” charts. This is because once there are three consecutive lines in the same direction, the Close must “break” the most recent three lines to draw a line in the opposite direction. For example, once there are three consecutive Up Lines, the Close would have to break below the low of the prior three Up Lines before a Down Line can be drawn. The (3) three-line break charts show a series of vertical white and black lines; the white lines represent rising prices, while the black lines portray falling prices. Prices continue in the same direction until a reversal is warranted. A reversal occurs when the closing price exceeds the high or low of the prior two lines.
HEIKIN ASHI
Heikin-Ashi charts resemble candlestick charts but have a smoother appearance as they track a range of price movements, rather than tracking every price movement as with candlesticks. Heikin-Ashi is a candlestick pattern technique that aims to reduce some of the market noise, creating a chart that highlights trend direction better than typical candlestick charts.
The downside to Heikin-Ashi is that some price data needs to be recovered with averaging, which could affect risk.
Strong selling pressure is shown by long down candles with small or no upper shadows, and strong buying pressure is shown by long up candles with small or no lower shadows.
BASELINE
A baseline is a fixed point of reference used for comparison purposes. In business, the success of a project or product is often measured against a baseline number for costs, sales, or any number of other variables.
A project may exceed a baseline number or fail to meet it. A baseline is typically used when a financial statement or budget analysis is prepared. The statement or analysis uses current income and spending as a baseline to figure out how well a new project is working.
In Conclusion
Candlestick charts are used by traders to determine possible price movement based on past patterns. When trading, candlesticks are helpful because they show four price points (open, close, high, and low) over the period the trader chooses. Traditionally, candlesticks are best used daily, the idea being that each candle captures a full day’s worth of news, data, and price action. This suggests that candles are more useful to longer-term or swing traders.
